TPB releases draft guidance on breach reporting obligations

The Tax Practitioners Board has released draft guidance to assist registered tax agents and BAS agents in understanding the breach reporting obligations that will apply from 1 July this year.

The new obligations require tax practitioners to report ‘significant breaches’ of the Code of Professional Conduct (Code) in the TASA relating to their own conduct, and by other registered tax practitioners.

The draft guidance released yesterday by the TPB consists of a draft information sheet, summary document and high-level decision tree. The documents explain the obligations in more detail and when they apply, and also contain practical case studies.

They also provide further detail on what constitutes a significant breach, the timeframe for reporting a significant breach and the consequences of not reporting a breach.

The information sheet outlines that significant breaches of the Code are breaches that satisfy one of the following tests:

• Are an indictable offence, or an offence involving dishonesty, under an Australian law
• Result, or are likely to result, in material loss or damage to another entity (including the Commonwealth)
• Are otherwise significant, taking into account:
• The number or frequency of similar breaches by the tax practitioner
• The impact of the breach on their ability to provide tax agent services, and
• The extent to which the breach indicates that their arrangements to ensure compliance with the Code are inadequate, or
• Are prescribed by the Tax Agent Services Regulations 2022.

The TPB said determining whether a breach is significant must be decided on a “case-by-case basis, having regard to the particular facts and circumstances”.

The guidance also provides further detail on what would be considered ‘reasonable grounds’ for a tax practitioner believing that a significant breach has occurred.

“Whether ‘reasonable grounds’ exist is an objective test, which looks at whether a reasonable person in the position of the tax practitioner would form the belief in the same circumstances,” the information sheet said.

“Tax practitioners do not need conclusive proof that a significant breach has occurred. However, they do need to be able to support their claim and verify or corroborate it as appropriate.

“If a tax practitioner is not certain whether there has been a significant breach of the Code but they have reasonable grounds for believing there has been, they must still report the breach.”

Where a breach is reported to the TPB, the TPB said it will assess the information provided and make further enquiries as required.

“This process will ensure the reporting of a significant beach relating to another practitioner’s conduct is supported and is not frivolous, vexatious or malicious. This is consistent with the TPB’s usual practice,” it said.

“A belief that is solely based on hearsay or the opinion of others without being substantiated will not be based on 'reasonable grounds’.”

Since they were announced last year, CPA Australia said there has been considerable confusion and uncertainty around how the obligations will work in practice.

“Our members are unsure how to apply these mandatory reporting obligations in practice. For example, when are they required to report on another tax agent and what are the consequences of non-reporting?” said Ram Subramanian, Interim Head of Policy & Advocacy, CPA Australia.

“We can now consider the new guidelines and want to hear from members about how they are being interpreted and how they could be improved.”

Subramanian stressed the need for the need for the administrative processes that sit behind these guidelines to be robust and user-friendly and “not cause further challenges to those seeking to comply”.

The Tax Institute said the TPB has been left in the challenging position of trying to make its guidance on the new rules practical while upholding the integrity of the law.

“We acknowledge that striking this balance is difficult and will likely be an iterative process that takes time,” said Robyn Jacobson, senior advocate at the Tax Institute.

The Tax Institute is concerned that registered tax practitioners will be left wondering how to apply the new law and when their actions or that of another registered agent constitute a transgression that meets the threshold beyond which they have a reporting obligation.

“There are serious concerns about the practicality of practitioners seeking legal advice on matters beyond the scope of a tax practitioner (notably criminal law) to comply with their obligations within the 30-day reporting period,” said Jacobson.

She noted that the draft guidance indicates whistleblower protection may be available for disclosures of misconduct by practitioners, in many cases, a reporting practitioner will not be an eligible whistleblower.

This may expose the reporting practitioner to potential loss or damage.

“Practitioners should be rightfully asking what their role actually is under the legislative provisions, and what it should be in an ideal world, in regulating each other in view of the TPB’s core role as regulator of the profession,” she said.

The Tax Institute said a post-implementation review of the new law in two to three years will be essential for determining whether the breach reporting provisions are properly achieving the intended policy outcomes.

Both the Tax Institute and Chartered Accountants ANZ plan to undertake detailed consultation with their members to identify further practical challenges and potential improvements to the TPB’s draft guidance.

CA ANZ said it will actively seek feedback from members and prepare a detailed submission and will collaborate with other relevant professional associations as part of this process.

“The key objective from CA ANZ’s perspective will be to develop with the TPB a shared, workable understanding of the circumstances where breach reporting should occur,” the association said.

“As the TPB’s draft demonstrates, much will depend on the specific facts and circumstances encountered, and – in determining whether to report a suspected breach made by another tax agent – limitations on the level of understanding of what has occurred.”

CA ANZ has also asked the Accounting Professional & Ethical Standards Board (APESB) to consider the inclusion of a similar qualified breach reporting obligation in APES110 and will be encouraging the APESB to consider the same type of practical implications as will be posed by the TPB’s draft guidance.

“CA ANZ will also be examining its own internal processes for managing any breach notifications which it receives as a recognised professional association under the Tax Agent Services Act 2009,” it said.

TPB Chair Peter de Cure AM said the guidance documents will help tax practitioners understand the additional breach reporting requirements that are aimed at not only maintaining but strengthening the integrity of the tax profession and tax system.

“By raising the professional and ethical standards of tax practitioners, breach reporting will improve the provision of tax practitioner services, enhance consumer protection, and increase community confidence in the integrity of the system that regulates those services and the tax industry,” he said.

De Cure said the TPB aims to take a pragmatic and risk-based approach to implementing the additional breach reporting obligations.

“We welcome feedback on our draft guidance to help shape our final position to ensure the guidance is practical and useful for tax practitioners in helping them understand and meet their obligations,” he said.